Photo: Yiting Lin / RNZ
Business confidence improved in the last three months of 2024 with an increasing number expecting an improvement in general economic conditions.
The Institute of Economic Research's December quarter business survey shows a net 9 percent of respondents thought economic conditions would improve, compared with the September quarter when a net 4 percent thought conditions would get worse.
However, the improving outlook did not filter through to firms' own trading activity, with a net 26 percent of firms reporting a decline in activity in their own business in the December quarter.
Firms remained cautious about hiring and investment, with a net 17 percent of firms reducing staff numbers in the December quarter.
NZIER deputy chief executive Christina Leung said a a notable proportion of firms also intended to reduce investment in buildings, and plant and machinery over the coming year.
Among industry sectors, the building sector was most upbeat, with a net 29 percent of firms feeling positive about the general economic outlook for the coming months.
This was a sharp turnaround from the 9 percent of building sector firms who felt pessimistic in the September quarter.
While a significant proportion of building sector firms reported a contraction in new orders and output, but they expected a recovery in activity.
The retail sector also remained upbeat about the general economic outlook.
Leung said a notable proportion of retailers expected a recovery in the first quarter of 2025.
"While some retailers were able to raise prices, retail sector profitability remained weak as cost pressures intensified." she said.
"The services sector was also feeling optimistic about the general economic conditions and demand outlook ahead despite the current soft demand.
"The optimism in the retail and services sectors reflects the expectations that many households will likely face reduced mortgage repayments as they roll over to lower mortgage rates over the coming year."
Sentiment in the manufacturing sector also improved, though the industry was less optimistic than other sectors.
Manufacturers reported increased demand in the December quarter, especially when it comes to exports.
"The lower New Zealand dollar was likely to have supported export sales," she said.
"However, the combination of intensified costs and reduced pricing power continues to weigh on the profitability of manufacturers," she said.
Cost and pricing indicators pointed to a continued easing in inflation pressures in the New Zealand economy.
The proportion of firms reporting higher costs fell to 35 percent.
However, the proportion of firms raising prices in the December quarter was still historically low at 10 percent.
"The weak demand continues to reduce capacity pressures, which in turn weighs on inflation pressures in the New Zealand economy," Leung said.
"This is reflected by the continued dominance of the lack of sales, which is reported by firms as the primary constraint on their business."
